893.51/3536: Telegram

The Minister in China ( Schurman ) to the Secretary of State

371. In connection with conference discussions I submit following:

My 367, October 22, 4 p.m. It is how to save Chinese Government, not this Government or substitute but any central government in China. Three conditions seem essential: more revenues, retrenchment expenditures including disbandment soldiers, unification of country. Last reserved for later report.

Met Premier and Minister of Finance dinner Chinese bankers 22nd and had long talk. They chased rainbows but finally admitted present financial situation as described my 367, October 22, 4 p.m. Premier complacently interpreted diminishing expenditures as demonstration retrenchment by his administration. Declared customs revision necessary and suggested increase of one-half existing tariff. Premier said that if tariff were thus increased entire customs revenue would be devoted to service of all foreign obligations and foreign supervision accepted while Chinese non-governmental supervision would be agreed to over all other governmental finance.

Foreign merchants including American will oppose tariff revision, but China, in spite of failure to carry out likin obligations and afford protection and due assistance to foreign trade, appears to have a certain [apparent omission] to tariff increase even if temporary and increased revenues are essential for carrying on any central administration. Commercial attaché thinks American merchants could be educated to this view. Department’s 229, August 17, 4 p.m.25 Minister for Foreign Affairs told me yesterday Chinese Government not supporting Japanese proposal for 25 percent hoping for 50 percent increase.

Tariff revision will take time especially as China wants substitute for present antiquated ad valorem tariff, one based on scientific [Page 349] economic principles with different rates on necessaries and luxuries. Hence some emergency finance measure necessary. Inspector General Customs has at the request of Chinese Government devised tentative scheme which Ministers consortium nations have already considered.

Scheme provides for surcharge 20 percent on present Maritime Customs collections—would yield 14 million dollars as present 10 percent famine relief surtax yields 7 millions.26 Income would cover issue of 50 million 8 percent bonds repayable 10 million annually five years. Aglen27 believes bonds readily taken in China at par. Loan would extinguish charges with accrued interest on salt surplus leaving $42,000,000 annually unencumbered. This surplus would have to be controlled otherwise it would be pledged again. Inspector General concludes,

“The Chinese Government is now, I believe, ready to accept control of the treasury in the form of a trust vested in the Chinese Bankers’ Association and the Inspector General of Customs. All Government cash receipts would be paid into the treasury thus controlled and all payments would be made under joint authority of the trust. The Ministries would be strictly rationed to a monthly sum which would not be exceeded and no pledging of the Government receipts would be valid unless authorized by trust. It is believed that this would have the effect of putting a stop to borrowing and the economical handling of such funds as exist would make them go further than at present. A scheme of this kind would, it is believed, institute an effective control without raising an uproar in China”.

Ministers consortium nations all agreed that unless permanent measures financial relief through tariff revision or otherwise are contemplated, foregoing plan should be rejected as merely temporary expedient postponing but not preventing inevitable crash. Otherwise they have not expressed themselves on plan except regarding necessity of some effective control. I am however disposed to accept Inspector General’s view that his scheme of financing and control might possibly prevent collapse Central Government pending some sort of tariff increase and adoption more general and permanent plan of rehabilitation Chinese finances by consortium or otherwise for which it would pave the way. British Minister shares this opinion and so reports to his Government. The alternative to financial relief is culmination of governmental chaos.

Present Peking government very unpopular throughout country. Any scheme to save China seems to bolster it up which is unfortunate but perhaps unavoidable. Canton becoming more important [Page 350] factor in national affairs though I cannot say whether this is due most to Governor Ch’en’s excellent administration or Sun Yat-sen’s campaign against President Hsu and reactionary Peking administration coupled with insistence on a federated constitutional government which in my opinion is the solution of China’s problem.

Learn Chinese Government will submit Inspector General’s scheme to diplomatic body in a few days.

Schurman
  1. Not printed.
  2. See Foreign Relations, 1920, vol. i, pp. 727 ff.
  3. Sir Francis A. Aglen, Inspector General of the Chinese Maritime Customs.